Clinical-stage biotech Celldex Therapeutics' (NASDAQ:CLDX) stock was clobbered during the general sell-off that affected its entire industry to start the year. Then, in early April, its first new drug candidate to enter Phase 3 failed to beat the standard of care, and its shares were hammered even more.
No investor should mindlessly follow the actions of billionaires, but The Motley Fool keeps tabs on many of them just to make sure we don't miss anything important. Five of the billionaire-founded funds we track bought up 3.3 million shares of Celldex stock in the first quarter, which makes this risky, beaten-up stock worth extra attention.
Let's look at the company's new drug candidates that haven't failed, as well as some other figures, to see whether it makes sense to follow these billionaires.
Rising, but still cheap
Although Celldex Therapeutics has attracted some billionaire attention, I called it a buy well over a month ago, and nobody listened -- at least not right away. Since hitting bottom in early May, the shares have risen about 31%, but they're still relatively cheap, at about $4.55 per share.
At the end of March, Celldex reported current assets -- those assets generally available as cash within 12 months -- of $261 million. Even after the stock's recent climb, I think its market cap of about $449 million severely undervalues its drugs in development, one of which is in a trial that could lead to an approval.
Hope for an underserved population
Celldex's lead candidate, Glembatumumab vedotin (formerly known as CDX-011, and fondly nicknamed Glembat), is in a phase 2b trial for the treatment of triple-negative breast cancer, a subset of the disease that lacks the three tumor cell targets that existing therapies exploit. If the usual rounds of radiation, surgical resection, and chemotherapy don't work, women with the disease are out of treatment options.
The triple-negative diagnosis occurs in about 10% to 15% of women with breast cancer worldwide -- a population of about 170,000 at present. Last April, Celldex reported results from a 124-patient study named "Emerge" suggesting that many of them may have an option in the years ahead.
Glembat is an antibody drug conjugate, or a protein that looks for gpNMB on one side, attached to a super-strong chemo drug -- the ominous glowing bits in the picture -- on the other side. Once the protein side binds to gpNMB, it's invited inside like a Trojan horse that destroys the cancer cell from within.
It seems gpNMB is overexpressed on the surface of breast-cancer cells -- and a bunch of other tumor types as well. The Emerge trial enrolled 124 heavily pretreated, advanced breast-cancer patients with tumors that overexpressed gpNMB, then randomized them into groups receiving either Glembat or an investigator's choice of chemotherapies.
Glembat didn't outperform investigators' chemo choices among the entire group strongly enough to be considered statistically significant. However, among triple-negative breast-cancer patients, it improved progression-free survival and overall survival enough to be considered highly significant.
The deal of the century?
Celldex scooped up Glembat in 2009 with the $93.5 million acquisition of CuraGen, which had a cash balance of $53.5 million at the deal's close, and added CuraGen's CEO, Dr. Timothy Shannon, to Celldex's board of directors. If Glembat's previous results are confirmed in the ongoing "Metric" trial, which is expected to complete enrollment by end of the year, then Celldex intends to file an application.
If Glembat is approved, the triple-negative breast-cancer population alone could push the drug into $1 billion annual sales -- "blockbuster" territory. Investigator-sponsored trials in some rare cancers, and ongoing melanoma investigations, could expand its use even further.
Celldex's purchase of CuraGen could be the deal of the century. If Glembat succeeds, it would give Celldex the resources to advance other pipeline assets. It's early yet, but Celldex's immuno-oncology candidate varlilumab is in combination studies with Bristol-Myers Squibb's Opdivo and Roche's recently approved Tecentriq. Should one of these combinations or Celldex's earlier-stage candidates score, this could become one of the best-performing stocks in these billionaire money-managers' portfolios.
Stay calm and diversify
Before you get too excited and load up on Celldex stock, it's important to note that its success is far from certain -- something the billionaires who recently snapped up its shares appear to understand. The largest purchase was from Millennium Management, a fund managed by Israel Englander. The 2.55 million shares Millennium picked up in the first quarter brought Celldex's weight up to just 2.41% of the total portfolio at the end of March.
Clinical-stage biotechs are risky, no matter how sure they seem. Performance at the commercial stage is nearly as unpredictible as clinical trials. While everything visible at this point screams "buy," I wouldn't bet the farm on this -- or any other single biotech, for that matter.
Cory Renauer has no position in any stocks mentioned. You can follow Cory on Twitter @TMFang4apples or connect with him on LinkedIn for more healthcare industry insight. The Motley Fool recommends Celldex Therapeutics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.